IPG Photonics (IPGP -4.11%) makes new fiber laser technology more affordable and accessible than the older, legacy lasers which are being phased out.
In this clip from the Rule Breaker Investing podcast, Motley Fool co-founder David Gardner explains why he's so excited about investing in IPG Photonics, how it's performed over the past several years, and one point of caution that potential investors should know about the company.
Check out David Gardner's other favorite companies:
- Small Cap Low-Risk Pick No. 1: Carter's Inc.
- Small Cap Low-Risk Pick No. 2: IPG Photonics Corp.
- Small Cap Low-Risk Pick No. 3: Ellie Mae Inc.
- Small Cap Low-Risk Pick No. 4: Planet Fitness Inc.
- Small Cap Low-Risk Pick No. 5: MercadoLibre Inc.
A transcript follows the video.
This podcast was recorded on Feb. 10, 2016.
David Gardner: Stock No. 2 this week is IPG Photonics. IPG Photonics recently traded at about $83 per share, and it's worth about the same amount as Carter's, $4.4 billion, in this case. It has a risk rating of 6. Low-risk company.
Now, IPG Photonics -- legacy lasers are going out, and fiber lasers are coming in. This is a trend that's been going on quite a while. Fiber lasers -- and by the way, I am not an engineer here, so I'm bringing out my best English major explanation for you -- fiber lasers are basically better technology that is more cost-effective. So, it's a nice, disruptive combination of more affordable, cheaper prices and superior technology.
And in fact, since the CEO founded this company in 1990 -- his name is Valentin Gapontsev -- he's been a brilliant manager. One of the best unknown CEOs in America. So, here he is, 26 years later, at the helm of this company that took the technology that he brought to our country from his native country of Russia, and has created a great, entrepreneurial enterprise based in Massachusetts today.
But, IPG Photonics -- just to give you a little bit about where we picked this stock and how long we've been following it -- I first picked it in April of 2007 at $20.53, so, pretty happy it's around $83 today, even if it's down from its recent highs. It's up about 250%. But, importantly for this one, a year later, in March of 2008, it had dropped from $20 to about $13, and we recommended it again.
I'm foreshadowing our general investing principle with this one, which I'll cover in a second. But, that position is up about 5 times in value since then, and of course, both are well ahead of the market.
Now, this technology is very relevant. It spans many different industries. We're talking about the medical industry, telecom. If you are a movie theater owner, and you want a more beautiful picture, you're probably looking at IPG's laser technology.
Lithium-ion battery systems for electric cars: There's a lot of laser welding that's making those battery systems, those lithium-ion battery systems, possible. So this is a company with not just one customer, but lots of different applications across multiple industries, which I like a lot. And finally, like I already mentioned, I like the CEO a lot. He's been around for a long time, owned some stock, and he's created a great company.
A note of caution about IPG Photonics: You may have heard China's slowing down. China is a meaningful market for this company. So, this company, like some others, gets dinged when we hear the slowdown in China affecting global business. That's something you have to know about IPG Photonics.
That's stock No. 2. My general investing principle: Buying good companies right into the teeth of bear markets is rewarding. I hope that sounds good to you this particular week, as we find ourselves in mid-February of 2016. A lot of us looking -- I'm wearing a big red sweater today, for those who might be watching the video of this podcast on Yahoo Finance, you'll see me in a great big red sweater because my stocks are well down in the last few months.
I think, my own portfolio, I'm down, I think, more than 25% last time I looked, which is not a very nice two months for anybody's portfolio. But I say that with a smile on my face, because it's happened before, and it'll happen again in the future. And, in particular, as I talk about these companies this week, I'm feeling really good about their prospects 3-plus years going forward. And IPG is no exception.
I love being able to point back to 2008, where we watched our stock pick go from $20 to $13, and we said we're buying. And that position is really up over the last seven or eight years. So, that's what I'm thinking about, this stock in another seven to eight years. We'll see.